In a significant decision last week, a federal judge ruled against banks seeking to invalidate the Illinois Interchange Fee Prohibition Act (IFPA). The law prohibits charging or receiving interchange fees on the tax and gratuity portions of transactions and restricts how transaction data may be used.
On February 10, 2026, U.S. District Judge Virginia Kendall ruled that the IFPA is not preempted by the National Bank Act, holding that banks do not “charge” interchange fees—the card networks do—and therefore the statute does not directly regulate bank powers. Plaintiffs are expected to seek an emergency injunction and appeal.
IBAT and other industry groups have pushed back against similar proposals around the country, arguing that current systems calculate interchange fees based on the total transaction amount and cannot isolate tax or gratuity without significant reengineering. Texas banks participating in card transactions that involve Illinois merchants or consumers will likely need to overhaul existing systems to comply with the requirements if their transactions fall under Illinois jurisdiction.
The IFPA poses potential compliance burdens, competitive disadvantages, operational and financial risks and ongoing legal uncertainty for Texas banks that conduct activities involving Illinois merchants, consumers or payment networks affected by the IFPA.
Although IBAT and other trade associations successfully defeated similar legislation during the 2025 Texas Legislative Session, this ruling virtually guarantees the issue will resurface when lawmakers return to Austin next year.
